The 1-2-3 Money Plan Part 12

Buying used stuff can elicit extreme opinions, usually from people who rarely, if ever, buy anything secondhand. But buying every item in your life as new just isn't being smart with money.

Maybe nowhere is the argument for buying used items more persuasive than in buying cars. New cars can lose 30 percent of their value in the first year of ownership. So, if you're talking about a $30,000 vehicle, the difference between a new car and 1-year-old car is $9,000. If $9,000 is a lot of money in your world, this discussion about buying used stuff is for you.

How to Buy Used Stuff, 1-2-3.

1. Get over the "yuck" factor.

2. Evaluate price and quality.

3. Keep it simple.

1. Get Over the "Yuck" Factor.

The first step in saving money with used items is to break through a mental barrier. It might not be pleasant to read it in black and white, but some people think used merchandise is: * Broken/tattered * Dirty/smelly * Not worth my time/Only for poor people So, I'm here to tell you that buying something used doesn't make you an inferior person. I don't think of myself as generally inferior, and I'm not poor. But I regularly stop by a local consignment shop to see what men's clothing they have. I bought a suit for $25 that I wear during television appearances. I bought a pullover windbreaker for $2. I splurged on two pricey silk neckties, $8 each.

How do you get over a mental barrier about buying used? Just do it.

This is another of the rare occasions where I advise you to spend money to save money. Go to a local thrift store or consignment shop and buy a used piece of clothing that you will wear, even if it's only a scarf or belt. Alternatively, buy a set of drinking gla.s.ses or plates. The point is to buy something used that you have a very personal interaction with. This way, you can confront your fears about buying used merchandise. If you have a pleasant experience, your aversion to buying used stuff will dissipate, if not disappear. You will get over the "yuck" factor.

Then a whole new world of retail opens up to you. You can consider used items from eBay.com, Craigslist.com, Freecycle.org, garage sales, flea markets, thrift stores, and newspaper cla.s.sified ads.

QUICK TIP.

Add to your barrier-breaking errands a stop by a local dollar store. The merchandise isn't used, but it is cheap. Dollar stores can be ideal outlets for junk food, such as cookies, pretzels, and chips. I've bought such things as an iPod case, calculator, greeting cards, and printer USB cord at a dollar store. Just avoid cheap electric or electronic items for fear of a fire hazard.

2. Evaluate Price and Quality.

Buying something used might mean settling for a product of lower quality than you can get new. That's fine for many purchases. n.o.body can reasonably expect to buy the best of everything.

On the other hand, buying used might mean you can afford something of higher quality. If you have $500 to spend on a living room sofa, which do you think is higher quality: a new one from Ikea or an Ethan Allen model purchased used? So buying used sometimes means you can get a superior product.

Similarly, buying used might get you a luxury brand with more features. Go back to the automobile example. Would you rather have a 2009 Chevrolet Cobalt subcompact or a 2-year-old Honda Accord? Or, for that matter, a 2003 Lexus ES 300 or BMW 3 Series? They all cost the same.

But, it's true, buying used items can be more of a ha.s.sle than buying new. So, it's always important to evaluate prices and quality.

3. Keep It Simple.

Some items are not functionally different whether new or used, a.s.suming they are undamaged. These include movie DVDs, music CDs, video games, and, yes, even books like this one. A simple garden shovel or hammer is preferable to buy used, rather than a rototiller or circular saw. The simpler, the better-fewer things to go wrong.

Other examples of great used purchases include kids clothing, toys, and musical instruments-considering they might be used for a short time. Consider simple sports equipment, such as golf clubs, a.s.suming you're not worried about custom fitting.

Of course, automobiles don't exactly fit into the category of a "simple" machine. But cars are so reliable nowadays. Many go 150,000 miles with only routine maintenance. So a corollary of the "simple" rule is to favor used items when they're reliable.

QUICK TIP.

An often overlooked source of free used items is your local public library. Besides books, many have a wide variety of periodicals, movie videos, and music CDs.

Refurbished Electronics.

One way to purchase electronics cheaper is to buy them as "refurbished." Contrary to its name, refurbished often does not mean the item is used, repaired, or inferior in quality. In fact, it might undergo tighter quality control than a new item because someone has checked to make sure the machine works.

The reason an item is cla.s.sified as a "refurb" could be minor, such as marred packaging. Or, maybe a previous customer bought the item but returned it because he didn't like the color or couldn't figure out how to use it.

Consumer savings from buying refurbs can be significant, 10 percent to 50 percent off retail price.

I've done even better than that. I bought a refurbished universal remote control that operates a TV and several related components. It's a fancy remote-definitely falls in the "wants" category. It typically costs about $150. I got a refurbished one for $80. Works great. The only difference is the refurbished remote came in plain packaging instead of the colorful blister-pack the new item comes in.

However, before buying a refurb, investigate how the retailer defines "refurbished." And find out about the return policy and what warranty you'll get.

The safest place to buy a refurb is from a manufacturer. Such major makers as Dell, Apple, HP, Sony, and Epson sell their own refurbished electronics. The easiest way to search for and buy refurbs is online, often at a manufacturer's own site. Some third-party online retailers, such as TigerDirect.com and NewEgg.com, also do a robust refurb business. Major retailer Target has started selling "preowned electronics," and Amazon.com sells refurbs at a companion Web site, Warehousedeals.com.

How to Teach Kids about Money.

Teaching children to be good spenders and savers is a topic that can befuddle even the most well-intentioned and well-informed parents. The main tool is an allowance system, which can teach skills kids will use for the rest of their lives.

As those children mature into adults, they will have to resist almost constant marketing pitches from advertisers on TV, Web sites, billboards, magazines, and newspapers. And they'll probably have credit available to them, allowing them to buy even when they can't afford it.

Money troubles await children who don't learn that money is finite, and they have to make trade-off decisions with purchases. They'll have to distinguish between needs and wants.

How to Teach Kids about Money, 1-2-3.

1. Give children an allowance.

2. Don't tie allowance to ch.o.r.es.

3. Make rules.

1. Give Children an Allowance.

Customize allowance amounts to what you can afford and what you think your child can handle. But don't give too little. The child needs to be able to save enough money in a relatively short period to buy something he or she wants.

A suggestion: Beginning around the ages of 5 to 7, give 50 cents per week for each year old the child is. At age 10, give $1 per year old. A less-accelerated plan is $1 weekly for each school grade level.

2. Don't Tie Allowance to Ch.o.r.es.

Don't confuse money lessons. Learning how to spend smart as a consumer is a different lesson than "you have to work for a living." You are not paying your children a salary; you're giving them money as a tool for learning, like you would give them a piano to practice on or flash cards with which to memorize multiplication tables.

So don't tie allowance to ch.o.r.es. Ch.o.r.es are to be done by the child for free because he or she is part of the household and has a responsibility to help operate it. If a child decides she doesn't feel like doing ch.o.r.es and will forgo the allowance, the allowance system crumbles and the lessons are lost. How will you respond when you tell her to make her bed and she asks, "How much are you going to pay me?"

To instill a work ethic and entrepreneurial spirit, offer a list of optional jobs a child can choose to complete for extra money.

If you disagree with this philosophy, go ahead and tie allowance to ch.o.r.es-after all, you're the parent. But regularly talk to the child about both lessons-spending and earning-separately.

3. Make Rules.

Require the child to earmark money each pay period for three accounts: spending, saving, and giving. For younger children, it's easy to place equal amounts into three containers or envelopes, labeled with each category. Identify types of purchases the child will be responsible for. Don't give loans or advances.

The "spending" account is where all the action is, and some of the best lessons. Money in this account should be spent regularly.

Allow children to make mistakes with this money. You want them to buy things impulsively that they later regret. You want them to buy a poor-quality item that breaks. You want them to run out of money, forcing them to save for several weeks to buy the next thing. You want them to choose among similar items with different prices.

Children need the repet.i.tion of buying things and witnessing the consequences of the decisions. Of course, parents should retain veto power over types of purchases, such as candy or dangerous toys.

Regularly talking to children after money decisions, especially poor spending decisions, is crucial. Talk about your own money life, too, such as why you're using coupons at the supermarket and how credit cards work.

With the "saving" account, the point is to show how money adds up over time. This money is not to be spent but to be counted and monitored. When you dismantle the allowance system in the child's late teens, the money can be used for college expenses or a car, for example.

Earmarking money for "giving"-weekly church donations or periodic donations to a charity-provides a deeper lesson about what money can be used for.

Of course, you can adjust the allowance plan to fit lessons you are trying to teach. Here are examples: * Include lunch money in older children's allowance and offer a deal: The children can keep the lunch money for each day they make a lunch at home and brown-bag it.

* Switch to a monthly allowance for older children, forcing them to budget their money over a longer period.

* Make saving optional but offer to match the child's contribution to their savings dollar for dollar.

Details of an allowance system aren't as important as making the effort to start one, adjusting it over time and teaching the lessons.

Chapter 5.